the new reality of network coorperation

8/11/2019 The New Reality of Network Coorperation

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The New Reality of Network Cooperation

Mobile Network Operators Should Partner While the Window of Opportunity Exists

Telecom & Media Viewpoint

Mobile operators are increasingly turning to active Radio Access Network sharing, especially on 3G and LTE, in order to manage

new CAPEX requirements and to achieve new levels of business performance.

Successful deals in infrastructure partnership in many markets are

evidence of a new business reality. Market players see significant

economic benefits from Radio Access Network (RAN) sharing,

although a variety of strategic issues must be addressed and

regulators may scrutinize any indication of reduced competition.However, the best partnering options are finite and those who

move first have the most to gain, while simultaneously limiting

options for followers.

What is triggering the surge in cooperation?

Maturing markets are forcing operators to find new ways to

reach financial targets and the financial crunch only brings

more pressure to better manage CAPEX to sales ratios. Despite

years of cost reductions and various levels of site sharing, there

is increasing recognition that more significant and sustainable

cost-base redesign is now required. This can be achieved

through structural reforms and deeper RAN cooperation.

Spectrumis being reallocated and new frequencies are being

awarded through auctions. In addition to raising cash for

governments, the objective of these auctions often include

extending broadband in rural areas or re-balancing operators

spectrum ownership, especially at lower frequencies. For this

reason, these auctions are being designed to allow, and even

encourage, bid consortiums. Bid consortiums enable the sharing

of license costs, and can also increase chances of winning

valuable spectrum.

New investment requirementsin latest technology are

necessary to address the explosion in data traffic. Global LTE

infrastructure investment, for example, is estimated to reach

$14 billion by 2015. Such investment in a climate of already low

and decreasing retail prices presents a challenging business

case in stand-alone scenarios. Partnerships offer the opportunity

to share the significant CAPEX and OPEX involved.

Technologyis maturing to a point where multiple frequencies,

technologies and operators can be served out of one box

making active RAN sharing increasingly realistic. While there are

still limitations in terms of the number of bands, technologies

and operators that can be supported by current equipment

offerings, there is motivation to resolve these constraints by the

time LTE takes off significantly, expected in 2012-2013.

Vendorslook towards becoming managed services providers

and are increasingly imaginative in their offers for new contracts,

presenting MNOs another opportunity to redesign their cost base.

Additionally, Private Equityfirms are eyeing opportunities in new

generation access, given the rising demand for high speed data.

Harbinger Capital is a case example with their plans for a hybrid

terrestrial / satellite LTE network providing wholesale capacity to

multiple operators across the United States.

Why partner? In search of better economics

The most obvious benefit to partnership is the economic sharing

of investment and operational costs. The scope of cooperation

determines the extent of achievable benefits. Figure 1 (overleaf)

illustrates the scope of cooperation together with indicative

network savings potential.


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2 The New Reality of Network Cooperation

The depth of sharing from passive to active RAN through to

core systems yields significant CAPEX sharing. The geographicextent of the partnership determines the volume of sites that

can be pooled and increases opportunities for site rationalization.

Further gains can be made if spectrum is pooled where it

yields increased utilization of jointly available frequencies.

Cooperation can focus on specific technologies and frequencies,

or consolidate retrospective technology and new deployments.

It should be noted however that absorbing retrospective

technologies such as 2G and 3G will require additional

investment to facilitate the rationalization. Operator CAPEX

can be further reduced either by extending the cooperation

beyond two operators, or by including equipment vendors or

financial investors.

The benefits of RAN sharing extend beyond investment sharing

and cost reduction, and can include the faster deployment of

HSPA or LTE, better coverage, and better quality of service with

higher speeds and capacity. There is also the opportunity to

adjust P&L structures through pricing arrangements between

the cooperation entity and the MNO owners. For example, a

joint venture can offer its MNO shareholders risk sharing with

volume commitments, virtual access pipes and other contractual

arrangements, such as the hedging of longer term data capacity,

in a similar way as heavy energy users secure their longer termenergy needs with a variety of supply contracts.

Who should partner?

Beyond the economics of partnership lie strategic opportunities.For example, leading operators in a market often see logic in

cooperation with challengers in specific areas such as roll-out

of new shared LTE networks. In the UK, the T-Mobile / Orange

merger upturned the market dynamic and took these 3rd & 4th

players to pole market position. There are also opportunities for

economies of scale, such as increasing the potential for exclusive

deals for devices and content. Indeed, many markets offer a

range of possible motivations for cooperation and an impressive

number of potential partnerships. In Sweden, for example, four

operators have managed three joint ventures, as shown in

Figure 2 overleaf.

Partnerships may also present other opportunities. For example,

many mature MNOs have ongoing transformation programs.

Partnerships and asset-owning joint ventures, in particular, offer

new scope for organizational redesign, outsourcing opportunities

and the reassessment of retrospective technologies and

associated operational cost.

New partnerships also offer significant opportunities for equipment

vendors to extend their portfolio into managed services and re-

draw past sales maps with new vendor swap-out opportunities.

Increasing scope (and complexity)

Increasing economic benefits


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3 The New Reality of Network Cooperation

Lessons learned to increase the chances of success

There are many examples of MNOs that have reaped significant

economic benefits from deep RAN cooperation, while other

partnerships have failed to take off. Based on analysis and

casework, Arthur D. Little offers insights into key considerations

that impact the chances for a successful partnership.

The first and foremost consideration is the choice of the right

partner. Partnerships will have the best chances for operational

success and yield the greatest benefits when the two parties

have complementary characteristics. Top of the list might be

how each potential partner views their radio access assets.

Are they considered predominantly revenue differentiators or

opportunities for cost reduction? If one operator has a unique

frequency allocation, then it will most likely consider it a revenue

differentiator and view any cooperation with a different set of

financial goals from the other operator which may be thinking

purely in terms of cost reduction.

Moving to more operational issues, specific technical

parameters, such as geographic and capacity needs, frequency

bands, needs of product portfolios including quality of service

parameters and vendor choices (current and future) will also

shape the complexity of future operations.

It is also important for the potential partners to have an aligned

view of business parameters, such as levels of funding, timing

of investments, current restructuring projects or other existing or

pending cooperation deals.

Any partnership must be designed and implemented from legal,

commercial, technical and organizational perspectives:

Infrastructure cooperationn has to be distinctly separated

from retail competition to avoid regulatory objections. Asset

ownership and transfers need to be considered, except in

the case of a virtual partnership. Many possible constraints

also need to be addressed, such as restrictive site agree-

ments or ongoing commitments related to equipment.

Commercial modelsn should be designed to be as pragmatic

and simple as possible. Managing traffic asymmetry

and establishing rules for the triggering of new capacity

investment is a key topic. If both parties see significant

benefits in cooperation, it is not necessary to balance and

cross charge each other for every peak loading event. Virtual

asset models, while appealing from a legal perspective,

can result in more complicated commercial and operational

processes later; care is required to balance ease of set-up

with ease of subsequent operation.

At the technical leveln , the choice of equipment vendors

for installed and planned equipment is key. While latest

technology enables MORAN and MOCN (Multi Operator

RAN / Core Network), the combination of different bands, the

range of technologies being absorbed in the cooperation and

the number of operators being served by the platform will

likely meet limitations in the equipment eventually. Multiple

equipment vendors can be retained in the overall network,

adding a level of complication, but going to multiple suppliers

for multiple operators in one region exceeds the capabilities

of equipment, such as Radio Network Controllers. In short,

not all combinations work and only a few suppliers can

manage specific scenarios. Operators in a partnership needto carefully design their technology integration plan.

At an organizational and governance leveln , a key success

factor is the mutual trust in the partnership platform. In

the case of a joint venture, recruiting the top management

externally or from both companies may help significantly.

The neutrality of the JV is essential to overcome difficult

decisions, such as the alignment of business priorities,

procurement, ensuring shareholders meet investment

obligations and that investments are made in mutually

agreed areas and meet the needs of all parties. In any

case, exit clauses need to be defined in the Joint VentureAgreement with as much design and planning effort as

the cooperation itself. This should not be perceived as

pessimistic; flexibility for future reconfiguration has to be

considered an essential part of the cooperation.

Figure 2. Sweden A joint venture for every occasion

Sweden: Multiple JVs

Source: Arthur D. Little

JV Svenska UMTS-Nt

rolling-out a joint 3G network

JV Net4Mobility

rolling-out a joint LTE/GSM

network

50% 50% 50% 50%

TeliaSonera Tele2 Telenor

JV 3GIS

rolling-out a joint 3G network

(outside big cities)

3

50% 50%


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www.adl.com/RAN_Cooperation


Arthur D. Little

Arthur D. Little, founded in 1886, is a global leader in

management consultancy, linking strategy, innovation

and technology with deep industry knowledge. We offer

our clients sustainable solutions to their most complex

business problems. Arthur D. Little has a collaborative

client engagement style, exceptional people and a firm-wide

commitment to quality and integrity. The firm has over

30 offices worldwide. With its partner, Altran Technologies,

Arthur D. Little has access to a network of over 17,000

professionals. Arthur D. Little is proud to serve many of the

Fortune 100 companies globally, in addition to many other

leading firms and public sector organizations. For further

information please visit www.adl.com

Copyright Arthur D. Little 2010. All rights reserved.

Conclusions

Mobile operators need to recognize that the economics of their

industry has changed and that historic independence at every

level needs to give way to smarter economic structures and

partnerships, especially in terms of infrastructure. Regulators,

which have successfully fostered competition to reduce prices,

need to recognize and tolerate operators increasing need to

collaborate on infrastructure. Vendors can play a key role by

proactively supporting, and even driving, partnerships, especially

in LTE. With their interests in managed services and the

opportunity to re-draw past sales maps, they have reason to also

consider financial participation in joint ventures.

Technology improvements continue to make deeper activesharing increasingly feasible. While technical aspects need

detailed joint design and planning, a partnerships greatest

challenges relate to the legal structure, valuation, commercial

models and operational management. Joint ventures often offer a

path to the most significant and substantive cost base redesign, but

significant benefits can be achieved through a variety of partnership

vehicles and there are many models from which to choose. Good

options do not necessarily require elaborate design; partners can

benefit even from smart reciprocal deals.

Finally and most strategically, when a potential cooperation is

considered in detail, the best partnering options are reducedquickly. First movers stand to benefit most, while simultaneously

limiting options for followers in that market. Now is the time to

be smart on partnerships. And whilst we are still in early days of

this new game, great opportunities exist in most markets.

Acronyms

3G 3rd generation mobile technology

CAPEX Capital Expenditure

HSPA High Speed Packet Access

JV Joint venture

LTE Long Term Evolution

MNO Mobile Network Operator

MOCN Multi Operator Core Network

MORAN Multi Operator Radio Access Network

OPEX Operating Expenses

P&L Profit and loss

RAN Radio Access Network

Contacts

Dr. Karim Taga

Managing Director TIME practice+43 1 515 4143

[email protected]

Simon Best

Principal TIME practice

+49 89 38088 700

[email protected]

Giancarlo Agresti

Director TIME practice

+39 06 68882 305

[email protected]

Christian Niegel

Principal TIME practice

+49 211 8609 539

[email protected]

the new reality of network coorperation

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